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When it comes to payroll taxes, there are a few different taxes you will pay, including:

Federal income taxes

  • Employers generally must withhold federal income tax from employees' wages. To figure out how much tax to withhold, use the employee's Form W-4, Employee’s Withholding Certificate, the appropriate method and the appropriate withholding table described in Publication 15-T, Federal Income Tax Withholding Methods.
  • Employees fill out IRS Form W-4 to notify their employers of how much tax they want to withhold from their paycheck each pay period. This is based on their filing status, dependents, and any anticipated tax credit and deductions.
  • To calculate federal income taxes, the IRS uses tax tables (or wage brackets) and an employee’s filing status, also called marital status.

FICA (Social Security and Medicare Taxes)

  • An employer generally must withhold Social Security and Medicare taxes from employees' wages and also pay the employer share of these taxes.
  • Social Security and Medicare taxes have different rates and only the social security tax has a wage base limit. The wage base limit is the maximum wage subject to the tax for the year. Determine the amount of withholding for Social Security and Medicare taxes by multiplying each payment by the employee tax rate.
  • For the current year social security wage base limit and Social Security and Medicare tax rates refer to Publication 15, (Circular E), Employer's Tax Guide.

Additional Medicare Tax

  • In additional to Medicare tax, employers are responsible for withholding the 0.9% Additional Medicare Tax on an employee's wages and compensation that exceeds $200,000 in a calendar year. You must begin withholding Additional Medicare Tax in the pay period in which you pay wages in excess of $200,000 to an employee and continue to withhold it each pay period until the end of the calendar year. There is no employer match for the Additional Medicare Tax.
  • For additional information see questions and answers for Additional Medicare Tax and Publication 15.

Federal Unemployment (FUTA) Tax

  • Employer’s report and pay FUTA tax separately from Federal Income tax, and social security and Medicare taxes. You pay FUTA tax only from your own funds. Employees do not pay this tax or have it withheld from their pay. Refer to Publication 15 and Publication 15-A, Employer's Supplemental Tax Guide for more information on FUTA tax.

Self-Employment Tax

  • Self-Employment Tax (SE tax) is a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the pay of most employees.

State and local taxes

  • Depending on the state you live in, you may have to pay state and/or local income taxes. There are currently seven states that do not impose a state income tax, including Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

State Unemployment (SUTA) Tax

  • Similar to federal unemployment taxes, business owners are responsible for state unemployment taxes set forth by the State Unemployment Tax Act (SUTA). However, SUTA tax rates and wage bases vary by state, so you will have to check with your state about these details and requirements.

Depositing Employment Taxes

  • In general, you must deposit federal income tax and Additional Medicare tax withheld as well as both the employer and employee social security and Medicare taxes.
  • There are two deposit schedules, monthly and semi-weekly. Before the beginning of each calendar year, you must determine which of the two deposit schedules you are required to use. To determine your payment schedule, review Publication 15 for Forms 941, 944 and 945. For Form 943, review Publication 51.
  • Deposits for FUTA Tax (Form 940) are required for the quarter within which the tax due exceeds $500. The tax must be deposited by the end of the month following the end of the quarter.

Reporting Employment Taxes

Federal Income Tax and Social Security and Medicare Tax

  • In general, employers who withhold federal income tax, social security or Medicare taxes must file Form 941, Employer's Quarterly Federal Tax Return, each quarter. This includes withholding on sick pay and supplemental unemployment benefits.
  • File Form 943, Employer's Annual Federal Tax Return for Agricultural Employees, if you paid wages to one or more farmworkers and the wages were subject to federal income tax withholding or social security and Medicare taxes.
  • File Form 944, Employer’s Annual Federal Tax Return, if you have received written notification about the Form 944 program.
  • File Form 945, Annual Return of Withheld Federal Income Tax, if you withhold or are required to withhold federal income tax (including backup withholding) from nonpayroll payments.

Federal Unemployment Tax Act (FUTA)

  • Only the employer pays FUTA tax and it is not withheld from the employee's wages. Report your FUTA taxes by filing Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return.

Preparing and Filing Form W-2

  • At the end of the year, the employer must complete Form W-2, Wage and Tax Statement, to report wages, tips and other compensation paid to an employee. File Copy A of all paper and electronic Forms W-2 with Form W-3, Transmittal of Wage and Tax Statements, to the Social Security Administration (SSA). File Copy 1 to an employee’s state or local tax department.